Gindalbie puts its hands out for $200m

Gindalbie Metals
is likely to tap shareholders for around $200 million in additional equity to cover the increased cost of building its Karara magnetite iron ore project in Western Australia.

Perth-based Gindalbie confirmed yesterday that stage one of Karara, in WA’s mid-west, would cost $2.57 billion, up from the $1.97 billion estimate provided in May last year, after completing a review of the project.

The company had warned investors in March to expect an increase of about 30 per cent in capital costs due to an increase in material quantities required for Karara and general inflationary pressures in the mining industry.

Gindalbie chief executive Tim Netscher said the company would be comfortable putting up to $100 million of its cash reserves towards meeting its share of the cost overrun, leaving it to find $200 million.

In a statement to the market detailing the results of the cost review, Gindalbie indicated that a rights issue would be the likely option for doing this. “To cover its share of the estimated increased construction cost, Gindalbie is considering equity alternatives that would give shareholders the opportunity to participate on an equitable basis," the company said.

Gindalbie also provided an update on forecast average cash operating costs for Karara yesterday, saying they were expected to be $65-$68 a tonne, not including royalties. Although that is high by industry standards, Gindalbie said costs would come down as production increased.

The company will also receive a premium for its magnetite concentrate, believed to be set at 20 per cent above the index price for Pilbara Blend iron ore, from Ansteel. The Chinese company has the right to buy all production from Karara.

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Gindalbie confirmed yesterday that the timetable for the magnetite project had slipped by a quarter, with commissioning now expected in the June quarter next year.

Ramp-up to full production of 8 million tonnes of iron ore in concentrate should be completed by the March quarter in 2013.

Studies are under way into an expansion to 16 million tonnes a year. At this rate, it estimates cash operating costs at $55-$60 a tonne.

Gindalbie has sufficient capacity at the port of Geraldton to support shipments of 16 million tonnes a year, but its plans to lift production at Karara to 30 million tonnes-plus a year are reliant on the Oakajee port and rail project.

Oakajee partners Murchison Metals and Japan’s Mitsubishi are due to release a feasibility study on the project today but they have not been able to sign up foundation customers due to a disagreement over tariffs.